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Why investing looks a lot like running a business

A lot of people out there are starting their own businesses. It’s a lot to deal with, being an entrepreneur. My brother-in-law just started his own company 1 year ago, but is making long, long hours in order to be successful. With investing, and then especially active investing, it’s actually not much different. You probably spend a lot of time on finding out where to put you money. By researching fundamentals, checking up on financials and reading news and opinions about companies we base our decisions. So, you pour a lot of time into your venture in the hopes of making it a success. It’s a good thing to look at your investments as a business. And besides the time aspect, there are more similarities to be found.

We all know that investing will take time and dedication. The results will be in your own hands. A lot of start-ups don’t make it through there first 5 years, or even their first year. And many people want to write their own books, or start their own venture. However most of these ideas won’t even see the light as they will never be more than an idea. The possibility to fail is a big limitation to a lot of people. Keep in mind that with investing or starting a business, failure is not even an option. You will succeed, or you will learn from it.

We are no investment professionals, and knew little about dividend growth investing. Yet here we are, tracking our own path and showcasing our investments and results. Looking back a lot have changed in 2 years and we are still learning from others or our own mistakes.

Our goal is to become financial independent by using the dividends to reinvest for the coming years, and benefit from the power of compounding. And later, to live off passive income so we have the freedom to do with our time what we want. We would never thought that after 2 years, we would be standing were we are now. Sometime you can’t really know what the future holds for you, but you will never find out of you don’t start at all.

The one thing I keep thinking about though, is about making it more lean. Spending my time efficiently and using the right tools to make it easier. That way I will be able to do more with less or the same time. There are a few things that helped us a lot so far, or which I still want to figure out the best way to implement it.

Making plans

The most important thing of starting a business, is having a plan. Sounds obvious, but you have to take time to set things up and think everything through. Deciding your own strategy can be quite difficult. You have to decide how much money you will invest, how to attract capital (even if it’s your own), how you will generate a positive return and what kind of business you want.

Once we decided to stick with DGI, it made investing a whole lot easier. You just don’t have to spend (too much) time on things that doesn’t fit your strategy. You will have more focus. And being able to make decisions that fits your plan will go much faster.

Data driven and measuring results

In order to measure results and set up goals you have to know what’s driving your business. We measure our expenses and income as well as our growth in dividends and portfolio worth. The same as an accountant for any business would do. You have to figure out what goals you want to achieve and find the right data to measure. There are a lot of digital tools available (like Capital One or YNAB). We currently use excel ourselves, plainly because a lot of tools are not available outside the US, or are just not exactly how we want it.

We are still figuring out what the best way is to measure results and keep updating the way we do it. Everybody here probably uses their own tools or platforms to keep track of everything. And I guess there is a lot to learn form each other.

Another way to use data as your friend is to base your valuation on for any business. With investing it’s important to know the business you’re investing in. You will want to know where you put your money. As dividend yields, an pay out ratio’s are important metrics to help build up an valuation, there are many more. For every business their own.

Seeking advice

The best thing about starting with Divnomics, is that I found out about the largeness of the FIRE community and all the information that comes with it. Like every business getting help from others will jumpstart certain aspects of running it. If you for example don’t know a lot about taxes and how to find out your best situation on the long term, you can check out how others do it, or just ask them to help you.

I’ve definitely learned a lot over the past few months, only by reading other finance blogs or from all of you who leave comments on this and other sites.

Improve your business on the go

From the start, we looked at our investments as a business. Still there is a lot to learn and improve. For me, one of the biggest power is to adapt on the go. Keep improving what your doing and keep looking forward. Our goal, of reaching financial independence, is still a long way to go. But every step or decision we make in order to get there, gives us so much energy, that the journey itself is equally special.

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6 thoughts on “Why investing looks a lot like running a business”

Investing in individual stocks is indeed like running a business (actually you’re owning many businesses). I also like to compare it with gardening. You plant the seeds (buy the shares), but in order to be successful you need to take care of the plants, water then, sometimes get rid of the weeds etc. However, if you do your job good, it rewards you with all its fruits. Good luck on your journey!

I love that you are treating your dividend paying stocks like a business. That’s exactly what they are but something I hadn’t considered until you said it. I too am hoping to fund my retirement with dividend paying stocks and index funds. While I feel like I am awhile off from reaching a dividend sustaining lifestyle I know with DRIPs and dividend raises that it won’t be too far in the future. Thanks for sharing the awesome article!!!

Thanks for the comment! We invest because we want to make a decent return, same as a business.
It would be amazing if those returns would be high enough to support being financial independent some day 🙂

Great analogy, investing sure is a lot like running your own business. It can be way more time consuming than people actually think before they start out. Great job taking time to learn more about investing. I think it’s certainly something you need to experience to get better at!